The People s Republic of China

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1 The People s Republic of China 中华人民共和国 Evaluating the economics of climate risks and opportunities in the insurance sector - A glance into the crystal ball The London School of Economics and Political Science Ael Fürderer Munich Re Client Management Greater China and Southeast Asia London 21 November 2012

2 Warning The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 2

3 What can we do best? Turning risk.. into value The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 3

4 What eactly does it mean? The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 4

5 Agenda for today 1. Current status of the Chinese non-life insurance industry 2. Chances and challenges ahead 3. Climate change: a vicious / cycle 4. Risks and opportunities for the insurance sector The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 5

Current status of the Chinese non-life insurance industry Motor insurance is the dominating line of business Gross written premium Source: CIRC, Munich Re China: NL insurance market 2010 2011:

6 Current status of the Chinese non-life insurance industry Motor insurance is the dominating line of business Gross written premium Source: CIRC, Munich Re China: NL insurance market : Non-Life GWP of USD 73bn (~R/I 13bn) 2015: Non-Life + Life GWP USD 467bn CIRC 5th year plan) 2011: Commercial NL premium of USD 31bn 2011: Private NL premium of USD 42bn 2010 = USD45bn 2011 = USD47bn 2012 = USD50bn Private motor: 60% of market Commercial motor 40% of market Compulsory = ca. 25% voluntary = ca. 75%. Motor 77,1% Property 11,2% thereof Commercial Property 10% Agriculture 2,8% Liability 2,9% Accident 2,1% Engineering 1,7% Health 1,2% Property private lines (5% penetration): No EQ / robbery (cash/jewellery) Agro: Government subsidies between 30%- 80% of premium values Recent non-life / motor insurance development 2006: Introduction Compulsory Third-party Liability Insurance (TPLI) 2007: TPLI standardized pricing 2008: vehicle ta 10% 5% 2012: Foreign insurers are allowed to write TPLI business, subject to CIRC approval t 2008: severe NatCat events 2012: CMI market pricing is being phased in Top 5 insurers gain 74% NL market share in 2012 Foreign companies: 1% market share PICC: 35,2% (P&C ~ GWP USD26bn) Ping An: 18,4% CPIC: 12,9% China United: 4,1% China Continent: 3,4% Source: Credit Suisse P&C: 37% 2011 new vehicle sale growth declined substantially (to 2.5 % p.a.): phasing out of the post- global financial crisis government vehicle purchase incentive programs vehicle licensing restrictions imposed by certain municipalities (e.g., Beijing). The slower growth, partially mitigated by higher average premium from luury car sales and more people buying higher coverage. The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 6

eposure: concentration on top 5 players Non-life portfolio motor driven Domestic focus Eposure vs risk adequate pricing

7 Chances and challenges ahead Things are changing in China / R&D World s factory Economic development Demographic shifting Increase of values Emerging of mega cities China s insurance industry Global economy 74% 23,9% 77,1% / RMB 150% 100% Risk eposure: concentration on top 5 players Non-life portfolio motor driven Domestic focus Eposure vs risk adequate pricing Solvency reform 2016 Competition / market opening The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 7

We still need more numbers to draw robust conclusions about the impact of climate change -

8 Climate change: a vicious cycle Munich Re is in line with IPCC s climate change assessment China has always been eposed to certain NatCat risks. We still need more numbers to draw robust conclusions about the impact of climate change - causing etreme weather and climate events in China. The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 8

Climate change: a vicious cycle NatCat eposure: China broad eposure to cat events Nature of the event NatCat Climate change related NatCat 52% drought AGRO losses 28% floods

l 6% frost 4% typhoon 3 out of top 5 dead

9 Climate change: a vicious cycle NatCat eposure: China broad eposure to cat events Nature of the event NatCat Climate change related NatCat 52% drought AGRO losses 28% floods 10% hail 6% frost 4% typhoon 3 out of top 5 deadliest earthquakes top 5 deadliest floods Frequency permanent time 11 typhoons p.a. (average) Severity Vulnerability of the population Eposure RMB RMB RMB Impact on: Population / public health Agriculture / Food supply Energy generation and supply Water supply / quality Private, commercial and public property Transport infrastructure Economic system (e.g. manufacturing, eport) Tourism The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 9

10 NatCat eposure Top 10 largest city populations in 2011 Top 10 largest city populations in 2011 at 8th 10th risk deciles by type of hazard # Cyclones Droughts Earthquakes Floods Landslides Volcanoes 1 Tokyo, Japan Kolkata, India Los Angeles, USA Tokyo, Japan Taipei, China Napoli, Italy 2 Shanghai, China Karachi, Pakistan Manila, Philippines Delhi, India Bandung, Indonesia Quito, Ecuador 3 Manila, Phillippines Los Angeles, USA Istanbul, Turkey Meico City, Meico Quito, Ecuador Bogor, Indonesia 4 Osaka/Kobe, Japan Chennai, India Lima, Peru New York,/Newark, USA San Salvador, El Salvador Malang, Indonesia 5 Guangzhou, China Lahore, Pakistan Teheran, Iran Shanghai, China Kaohsiung, China 6 Shenzhen, China Ahmadabad, India Santiago, Chile Sao Paolo, Brazil San Jose, Costa Rica 7 Seoul, Rep. of Korea Santiago, Chile San Francisco, Oakland, USA Dhaka, Bangladesh 8 Dongguan, China Belo Horizonte, Brazil Kunming, China Kolkata, India 9 Hong Kong, China Luanda, Angola Nagoza, Japan Buenos Aires, Argentina 10 Foshan, China Zangon, Myanmar Izmir, Turkey Rio de Janeiro, Brazil Source: United Nations / World Urbanization Prospects The 2011 Revision The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 10

11 NatCat eposure Top 10 fastest growing city populations in Top 10 fastest growing city populations in at 8th 10th risk deciles by type of hazard # Cyclones Droughts Earthquakes Floods Landslides Volcanoes 1 Zhongshan, China Nay Pyi, Myanmar Yinchuan, China Can Tho, Viet Nam San Jose, Costa Rica Bogor, Indonesia 2 Xiamen, China Sharjah, UAE Kathmandu, Nepal Batam, Indonesia San Salvador, El Salvador Quito, Ecuador 3 Haikou, China Dubai, UAE Karaj, Iran Yongin, Republic of Korea Quito, Ecuador Malang, Indonesia 4 Jinjiang, China Luanda, Angola Sulaimaniya, Iraq Zhongshan, China Bandung, Indonesia Naples, Italy 5 Dongguan, China Huambo, Angola San Jose, Costa Rica Xiamen, China Kaohsiung, China 6 Jiangmen, China Hamah, Syria Quetta, Pakistan Suzhou, China Taipei, China 7 Vientiane, Lao Nanyang, China Xining, China Wuhu, China 8 Huizhou, China Liaocheng, China Bursa, Turkey Hefei, China 9 Jiaing, China Handan, China Tangshan, China Kigali, Rwanda 10 Putian, China Zhengzhou, China Davao, Philippines Jinjiang, China Source: United Nations / World Urbanization Prospects The 2011 Revision The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 11

12 Risks and opportunities for the insurance sector Complee perspectives the pressure will grow / Supranationals The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 12

13 Risks and opportunities for the insurance sector Direct impact Budget definition and allocation Product development & pricing Reserving Solvency Rating Demand for accuracy / availability of resilient cat / loss models Risk model Impact of climate change on China s insurance market Capital model Economic development Political stability Health / Life epectancy Food quality and security Impact Reinsurance Cat Bonds Weather derivatives Risk structure & transfer strategy Public Private Partnership Risk management ALM strategy CIRC insurance regulations CIRC s 12.5 plan national natural disaster transfer program Portfolio strategy and risk appetite of the re/insurance companies Model provider AIR EQECAT RMS Event severity Events EQ Typhoon (wind/flood) Inf. disease Flood Event frequency Contingent Capital solutions Causes CO² emissions Atmospheric pollution The London School of Economics and Political Science Ael Fürderer 21 Nov 2012 Page 13

14 The People s Republic of China 中华人民共和国 Thank you for your attention The London School of Economics and Political Science Ael Fürderer Munich Re Client Management Greater China and Southeast Asia London 21 November 2012

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